It’s indisputable! Succession planning, particularly for small and mid-size (SME) businesses, is essential and important, even though sometimes procrastinated.
According to the Canadian Federation of Independent Business (CFIB), nearly two-thirds (63 per cent) of Canadian small business owners expect to exit their business within the next decade, representing more than $2 trillion in business assets that could change hands. At the same time, the CFIB stats reveal that only 6 per cent of all owners have a formal written succession plan.
In Edmonton, despite the detailed balance sheets, growth projections, business plans and the many interpersonal management and complex business-financial issues, succession planning is also a revealing reality check. Since every SME or family business is unique, every succession is more, much more, than a simple a transaction.
It is a strategic process that protects legacy, aligns leadership and strengthens the business across generations. It is a process which protects business value, prepares future leaders and ensures continuity no matter what comes next.
Experts and consultants make the crucial point that, for capital intensive, family owned and partner owned businesses, succession must be more than a handoff. It is a turning point that determines whether everything that has been built continues to thrive or slowly unravels.
The experts also caution that effective succession planning must be done with unflinching reality.
“Succession planning is important because it helps preserve viable businesses; support the next generation of entrepreneurs and maintain jobs, local services, investment and economic activity that communities depend on,” explains CFIB senior economist Laure-Anna Bomal. “It contributes to building a stronger Canadian economy. Businesses with a formal succession plan are much more confident in their ability to exit successfully than those with no plan at all (86 per cent versus 54 per cent). At a time when business exits are outpacing business creation, successful ownership transitions are becoming increasingly important to Canada’s economic resilience and entrepreneurial capacity.”
Other common pitfalls include assuming that a buyer or family successor will automatically be available. Finding a suitable buyer or successor was the most frequently cited challenge, identified by 47 per cent of owners.
The trends underscore the fact that many SME owners are so focused on running the business, they postpone planning until retirement is approaching. CFIB stats show that 37 per cent of SME owners said they were too busy running their business to dedicate time to succession planning.
Lynne Fisher is MNP’s national team leader of ExitSmart, and a respected Edmonton succession planning expert. She emphasizes timing and acknowledges procrastination (with or without good excuses) as obstacles to effective succession planning.
“One of the most common pitfalls is starting too late, when health, family circumstances, market conditions or business performance have already narrowed the owner’s choices. The earlier an owner starts, the more options they are likely to preserve.
“Timing matters because tax rules, buyer readiness, business performance, leadership readiness and the owner’s personal goals can all affect the eventual outcome. If a third-party sale is an option, the best position is to be prepared in the event of an unsolicited offer, a market downturn or market upswing – all of which create pressure to sell. If succession involves family members or employees, financing and ensuring tax efficiency may take years, so the planning process should begin well before the owner intends to step away. Especially for SMEs, the pace of change is accelerating.”
She adds that adopting relevant technology, managing ever more complex supply chains and attracting and keeping top talent in an environment where many employees can work anywhere means that thoughtful, flexible succession planning is more important than ever.
“Succession planning is no longer simply a future consideration or an owner’s exit strategy. It is a critical business discipline that helps ensure leadership continuity, organizational resilience and long-term sustainability. By proactively preparing for leadership and ownership transitions, planned or unexpected, businesses can continue to evolve and grow without disruption.”
Fisher emphasizes that every business needs both a succession plan and an emergency/ continuity plan. For SMEs, succession planning creates choices, protects what matters and helps ensure the business is not forced into decisions by timing, illness, market conditions or family circumstances.
“Succession is not only about exit. It’s about preserving value, continuity, opportunity and stability for owners, family members, employees and future leadership.”
Contemporary succession planning focus goes way beyond simply ‘finding a buyer.’ It involves determining the value of the business, addressing tax and legal considerations, identifying and preparing successors, securing financing and developing a transition timeline.
Key considerations include who will take over the business; whether family transfer, employee buyout or external sale is the best option; how much the business is worth; what tax implications need to be managed; how dependent the business is on the owner’s day-to-day involvement and how employees, customers and suppliers will be affected by the transition.
While it sometimes makes for fragile discussion, succession professionals stress the importance of a succession planning reality check.
“CFIB research shows that business valuation remains one of the biggest challenges,” Bomal notes. “Among owners who identified valuation as a problem, 66 per cent said they simply don’t know what their business is worth, while 50 per cent don’t know where to start and 42 per cent don’t know which professionals to consult.
“To maintain realistic expectations, owners should obtain professional advice from accountants, lawyers and valuation experts early in the process. They should also recognize that market value is ultimately determined by what a buyer is willing and able to pay. Owners should also recognize that intangible assets, such as reputation, customer relationships and goodwill can be difficult to value.”
She adds that owners should remain open to different succession pathways, including sales to employees, unrelated buyers or family members and focus on preparing the business to operate independently of them.
Fisher underscores the reality check aspects of succession planning.
“A current, and regularly planned business valuation cycle can help ground expectations and be a tool in building value. Owners can begin by speaking with advisors and professionals who understand how businesses are bought, sold, financed and transitioned, while conversations with a financial advisor can clarify the owner’s long-term financial needs and ability to meet those needs.
“It is also important that business owners speak with family members early about goals, aspirations and concerns, because early conversations can reduce misunderstandings and surface issues before they become barriers. Realistic planning starts with good information, honest conversations and enough time to adjust the plan as circumstances change.”
Bomal points out that, “It’s also important to remember that most owners care about more than price. They want to protect employees, preserve the business’s legacy and maintain its role in the community. A successful succession plan should balance both financial and non-financial objectives.”
Fisher concedes that, for many business owners, succession planning can feel overwhelming, even though it does not need to be completed all at once.
“The most effective plans are built over time, adjusted as circumstances change and strengthened through thoughtful conversations and practical steps. What matters most is beginning the process with intention, before choices become limited or decisions are forced.
“A powerful place to start is with one simple question: what does the owner want the business to make possible—for her/him, their family, their employees and for the future?”